Tuesday, February 16, 2010

17,500 Positions To Be Cut: 2010-12; EPS Inline; JVs Unwound

We're underway with Merck's year-end conference call, live:

▲ Ken Frazier remains "confident" about Isentress, despite Gilead's news this morning -- Gilead is still many years away from any launch. There was some stocking effect in the sales, in Q4 2009 -- especially Januvia.

▲ Seamus Fernandez, at Leerink Swann -- foreign exchange benefits (at the revenue line) were up by one percent (Q4 2009), about the same at the EPS line -- all due to a "New Merck" currency hedging progam (something Schering-Plough didn't generally do much of).

▲ Saphris sales in Q4 2010 were only $40 million, worldwide -- that is very weak.

▲ Billy Tauzin comment from CEO Clark: Same strategy at PhRMA -- it's just a "new guy", at the helm -- Billy will stay on as a consultant to PhRMA. [Ed. Note: Fabulous. Not.]

▲ Morgan Stanley's David Reisinger: comment on CEO replacement planning (for early 2011)?: CEO Clark feels it is his most important priority -- in pretty good shape from an "internal candidate" perspective.

▲ Update on Remicade/Simponi arbitration -- hearing scheduled late September 2010, already met with the entire aritration panel, per Ken Frazier. No repsonse on the question about possible negotiated settlement talks -- with J&J.

▲ Jami Rubin, at Goldman Sachs -- what is going on with Consumer Health businesses -- what is the chance of spin-off [Ed Note: Huzzah!]? Also -- is the $3.5 billion savings gross or net? Kellog: Net figure of #3.5 billion.

Kellog's answer: On Consumer Health, and transaction possibilities -- we are "looking forward to putting a strategy together" for Consumer Health. That's a non-answer -- a "no comment", dressed up as an evasive answer.

▲ JP Morgan's Chris Schott (phonetic) asks about R&D budgets, beyond 2010 (will the size be reduced?), and the absolute size of the R&D spend -- it is in danger of continuall-growing out of scope, and unmanagable. CEO Clark answers that Merck is organizing R&D "by franchise" -- by disease, or markets. CFO Kellog offers a non-answer.

▲ Clearly Q1 2010 EPS will be weak, given CFO Kellog's remarks.

▲ 2010 earnings will be significantly "back-end loaded" in 2010, per Merck CFO Peter Kellog.

▲ Temodar patent invalidity judgment "disappointing" to Merck -- it will see generic competition soon, despite Merck's having filed an appeal, and seeking a preliminary injunction.

▲ High single digit compound annual growth in non-GAAP EPS, for the next four years, but 2010 won't be as strong -- as the mulit-year average CAGR -- due to patent expiries, and 2010 post-treansaction merger expenses.

▲ Legacy Schering-Plough's foreign exchange exposures hurt results -- primarily Euro and Japanese Yen -- moderated by new hedging efforts at New Merck.

▲ New Merck had published this, on January 10, 2010: "With respect to the arbitration with Centocor, a wholly-owned subsidiary of Johnson & Johnson, the arbitration panel has recently been selected. Since the selection, the parties have met with the panel and the hearing in this matter has been scheduled for late September 2010. . . ."

No breakdown on Saphris sales in Q4 2010 in the release. Odd.


Anonymous said...

Even though the $40 Million on Saphris is worldwide I presume that this reflects US sales only.

Per your blog comment submission in the EU was shortly before June 4, 2009. As I believe the EU review period is 10 months it's unlikely that the review has been completed.


Anonymous said...

Am I wrong, isn't this 17.5K now an increase of 1K in the layoff numbers?

Condor said...

One -- you are, of course correct, Salmon. The reps were selling off of package inserts only, in the US during Q4 2009, according to Merck, today. And some of that $40 million (maybe most of it) was a "stocking order" -- i.e., not likely to repeat, in that volume, any time soon.

Now, the 17,500 figure for layoffs includes 2,500 "open" positions that will not be filled -- but the last figure Merck had given was 16,000, so yes -- it is up by a thousand, net-net.

Thanks folks!


Anonymous said...

Thank you. I should have realized that it represented stocking.

It really makes me curious to see what the next few quarters sales figures are.

Saphris is only approved for acute use (i.e. inpatient with maybe 1 - 2 weeks continuation as outpatient therapy). Most inpatient treatment for schizophrenia and acute manic attacks are in state institutions and not private hospitals. It also takes time to get approval to put drugs onto a formulary especially in these situations. Considering that it's a me-too, the BID dosing and the cost I'm beginning to think that uptake will be slow. Especially if there's not a lot of off-label usage.

Slow uptake may also skew any required postmarketing safety reporting as with less usage there will likely be fewer AE reports as well as fewer drug interactions.


Anonymous said...

so, they won't fill 2.5K open positions...any bet about that jet pilot and helicopter pilot?